The Low-Down on Real-Time Bidding

Time is money — a cliché that rings very true in the realm
of digital advertising today.

As consumers, each gadget we pick up (and put
down), every website we visit (and leave) and all
the ads we see (and ignore) work together to decrease
our attention span. Advertisers have milliseconds
to capture our attention and evoke
enough interest from us to elicit a positive action.

For this reason, companies including AT&T,
American Express, Toyota and other easily recognizable
brands (see sidebar) are turning to real-time
bidding (RTB) in droves. In fact, eMarketer expects
RTB to enjoy a 72.4 percent growth in U.S. ad
spending for 2013, equivalent to a projected $3.4
billion market.

What is Real-Time Bidding?

Real-time bidding is a method of buying and selling
advertising inventory one impression at a time and
doing so in a “live” or auction-style environment.

“Placements on websites are sold much like billboards
on highways and may be pre-sold via contracts
or live via RTB,” said Rubicon Chief Scientist
Neal Richter, PhD. “With RTB, when a user visits a
website the ad server then places the ‘impression’
out for bid via a predefined protocol. Once bids are
received, then an auction is held, the highest bidder
wins and their ad is shown to the user.”

This dynamic online advertising environment,
manifested through a very intricate process (see
next page), can provide hyper-relevant ads to a user
based on the information a publisher shares with
advertisers (e.g. user location, products viewed,
etc.). Despite the obvious complexities of programmatic
buying, the full information exchange is completed
in less time than a blink of the eye and
typically without disrupting the user experience.

RTB for All?

RTB is causing some disruption, however, namely
between advertisers and publishers.

While publishers can use RTB to offer any inventory
not sold via pre-negotiated contracts — reducing
the overhead of traditional sales efforts by
automating the sales process — publishers lack
control over ad prices. The result, from the perspective
of publishers, is that RTB ad exchanges are
driving down CPMs. Some RTB networks disagree,
saying the real reason for lower CPMs is the way a
publisher’s inventory is set up.

Chango’s CEO Chris Sukornyk tells Website
Magazine that publishers can make positive
changes to maximize ad exchange revenue right
away. For example, if a user searches for “cars” on
a website, the URL in the browser should show
site.com?search=cars, not just “site.com,” as the latter
leaves out key information that fuels bids. Sukornyk
provided several other tips to maximize ad exchange revenue, which are available on the Web
at http://wsm.co/MAXAds.

In addition to steps publishers can take to increase
earnings, many advertising platforms expect
CPMs to go up, including SiteScout.

“I think a shift toward quality inventory will
also take place, which will force buy-side platforms
to begin evaluating solutions for offering programmatic
‘premium’ inventory,” said SiteScout Director
of Marketing Ratko Vidakovic. “That is, more expensive
but higher-quality impressions, possibly on
a guaranteed basis.”

The word “guarantee” is not one often heard in
the RTB world, as it is ultimately an auction.
“In other words, you cannot promise an advertiser
they will win X amount of impressions during a certain
period, for a certain price,” said Vidakovic.
“Someone else could end up out-bidding them, or
the volume of impressions that meet their target criteria
might simply be unavailable. Some of this is
an inherent byproduct of the auction-based pricing
model. The other part is a result of the segment and
volume of inventory that publishers choose to expose
to the RTB ecosystem.

“Publishers are wary of exposing their entire inventory
to the RTB channel for fear of cannibalizing
their high-CPM direct ad sales — also known as
‘guaranteed’ inventory. Such deals usually involve a
contract with the publisher or ad network directly
and often yield the highest revenue for publishers,
especially ones with coveted inventory.”

Nonetheless, the adoption of RTB is increasing,
specifically among major national companies. Index
Platform, a digital advertising technology provider,
reports that in Q2 2012, 57 percent of major national
companies used RTB in North America. Some publishers,
however, are slow on the uptake, because
they do not have an acute need for RTB. Richter
counts super premium publishers who sell out
everything — or close to it — among that group. All
publishers and advertisers, as well as their agencies
should understand RTB technology, however.

This is because, as you would expect, real-time
bidding goes a long way in both an advertiser and
publisher’s ability to provide users with a personalized
experience, which can increase the likeliness
of a user’s interaction with an ad.

“By evaluating each ad impression individually
and using those characteristics, you end up
with highly targeted campaigns,” said Vidakovic.
“Another advantage to this model is that you can
apply cookie data to the auction process to see if
the impression you’re about to bid on has some
kind of behavioral history. This leads to a very efficient
market-driven pricing model. Instead of
buying page views (impressions) in bulk, advertisers
are now buying them individually, which is calculated and priced as an effective
CPM or eCPM. Lastly, since RTB is powered by a
multitude of ad exchanges, the audience reach
available to advertisers is practically unparalleled
in online advertising.”

RTB Implications

Real-time bidding is dramatically changing the digital
advertising landscape. While it may appear to
many as a highly complex mechanism, technologists,
such as Rubicon’s chief scientist, consider it a
low-level mechanism in its basic form of automating
individual page-view auctions and think it has
room for advancements. While RTB is a significant
departure for both advertisers and publishers, the
numerous benefits for many outweigh the drawbacks
(at least as it stands today).